Product or Technology in Your Business is Just Not Enough
Strive to achieve sustainable competitive advantage
Congratulations on building a product or technology that your customers crave for! Your business is making great profits and is growing at a tremendous pace. Everything seems to work great.
Now you need to ask yourself the following questions:
- For how long can you maintain this growth?
- Are you prepared for the disruption in the future by your competitors or new entrants?
- What will be your strategy & action plan to take on such a disruption?
Why is your product or technology not enough?
It’s no more a good idea to compete based on just your product, technology, or even price. There are two convincing reasons to support this claim:
- Firstly, whatsoever be your expertise in making your product or technology differentiable & better than your competitors, they are going to catch you up sooner or later by diverting their resources into making products that may not be the same as yours but similar to yours. A very little differentiation in your offered products or solution from your competitors may force your target customer segment to switch to your competitor resulting in a reduced market share.
- Secondly, changes in the business environment may make your offering obsolete.
What is required?
Entrepreneurs and startups have been underestimating the power & implications of disruption but the present pandemic due to COVID 19 has revealed its outreach up to the soul of businesses. Hence it’s time for you to assess & exploit your existing business models, & explore new ones from the inside out. Please note that when we say business model, it also includes your offered product, service, or solution in the market as one of its components. You may visit our article on the business model to get more insights.
In the ever-changing business environment, companies must have a sustainable competitive advantage to remain in business and maintain a distinguished position in the market for a long period.
A pitfall that prevents a sustainable competitive advantage
Startups and SMEs (small & medium scale enterprises or businesses), especially in their growth stage, tend to copy best practices and activities of their competitors to optimize their Operational Efficiency using various available tools like six sigma, lean manufacturing, TQM, etc. Though it is required for businesses to remain in the game, unfortunately, it cannot help them in gaining a sustainable competitive advantage as every competitor has access to these best practices and tools.
Companies thus become indistinguishable to customers. Eventually, they tend to compete at the same price and similar offerings.
Examples are most of the SMEs. Almost all SMEs serving a particular market segment have fairly the same products to offer & with similar pricing. This leads to fierce competition for market share.
Things required for a sustainable competitive advantage
To have a competitive advantage over your competitors for a long time, it is important to analyze not just the product, service, or technology but all the co-related activities involved in the business. That is, we need to work on the entire business model.
How does it help?
- Firstly, it is very difficult for competitors to copy the activities related to all the nine building blocks of the business model.
- Secondly, even if the competitors manage to copy a major portion of activities, they fail to take away a significant portion of market share because their copied aspects misfit with those that already exist in their current business model. Thus the system as a whole does not work the way it was intended to, for addressing the target segment.
Let’s now see what and how to analyze in the existing business models and how to explore new ones to stand out among your competitors and have a sustainable competitive advantage over them.
Analyzing existing business model for improvement
A very powerful tool that can be used to analyze the existing business model is the SWOT analysis. This tool helps businesses to find their strengths, weaknesses, opportunities, and threats.
Strengths & Weaknesses can be known by asking the following questions based on different building blocks of a business model and rating on the scale of 0 to 10:
- Does your product or service satisfy your customers more than your competitors?
- Do you have direct access to customers or depend on other parties?
- What percentage of customers did you lose or gain in the past few months?
- Do your customers stick to you and incur costs while leaving you or not?
- Is it difficult or easy to copy or replicate your resources like intellectual property, technologies, etc.?
- Is it difficult or easy to copy the activities like design, development, sales, marketing, etc.?
- Did you lose your partners in the past few years or not?
- By what percentage did your revenue increase or decrease in the past few months?
- By what percentage did your costs increase or decrease compared to your revenue in the past few months?
Opportunities & Threats can be known through the questions as follows and rating each on a scale of 0 to 10:
- Are there better or inferior alternatives to your product & services in the market in terms of cost, performance, etc?
- Is your target market expected to grow or shrink in the coming years?
- Are behavioral, cultural, or technological changes making it difficult or easy for customers to leave you?
- Are the new technologies, innovations, or skills going to strengthen or make your business model worthless?
- New trends (technological, social, etc.) make it difficult or easy for you to carry out your activities?
- Are your partners’ expectations or working behavior/ pattern changing to weaken or strengthen your business model?
Exploring new business model
The entirely new business model corresponds to a new business idea that you want to take forward. You may follow a step by step approach as given below:
Step 1: Start with a minimum viable product (MVP) to validate the customer segment that will pay you for your offering. Giants like Facebook, Airbnb, and Twitter; all started as MVPs. In-depth knowledge about MVP can be known by reading our article on it.
Step 2: Once the idea is proved to be viable, analyze on grounds of feasibility. Here, you may ask yourself the following questions:
- Do you have the resources to enable you to create a value proposition for your target segment?
- Do you have the partners who can help you in offering your value proposition to your customers?
- Do you have the capability to carry out activities that help you in creating and delivering value?
Step 3: Your idea should also be flexible enough to quickly adapt to the changing business environment. The image below helps you to analyze the degree of adaptability of your idea.
Step 4: Analyze your business idea using porter’s 5 forces. The five forces help you predict the competition in your business and understand the strength of your competitive position. The following image guides you in the process to use the layout.
From the image above, you can analyze which of the five forces will have a relatively higher effect on your business. You can then take the necessary action to mitigate the risks in your business.
Do you feel there is something more to be included? Kindly write to us. We will be more than happy to consider your valuable suggestions.